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Ways to Save for Retirement When You Don’t Have an Employer Plan

choices for retirement plans

Last week we talked about having a retirement savings wake up call, which is a very important first step in preparing for the future. It’s pretty easy to save for retirement when you have access to an employer sponsored plan, but what about those who are self employed or work for a company that doesn’t offer retirement? Luckily, there are several smart and simple choices for setting up a retirement plan on your own.

Can’t I Just Save Money Without a Plan?

Of course, if you’re willing to save lots and lots of money. The beauty of having a tax deferred or tax advantaged retirement plan is the ability to save on taxes, now or in the future, plus growing money through the wonderful benefit of compound interest. Without those two things, you’ll need to save much more money to have enough for retirement after paying Uncle Sam up front and from later earnings. To see how much you’ll need to save, try out the free retirement calculator from Personal Capital.

Traditional IRA

Anyone can open a traditional IRA. If you or your spouse aren’t covered by a retirement plan at work, your entire contribution is tax deductible. If an employer sponsored plan is available to you or a spouse, funding a traditional IRA is still allowed, but your contribution may or may not be deductible, depending on income.

Roth IRA

A Roth IRA offers no immediate tax deduction, meaning the account is funded with money that has already been taxed. However, once money is put into a Roth IRA, there is no tax on interest or withdrawals after age 59 and a half. Roth IRA’s are great for those in a low income tax bracket who feel tax rates may be higher in the future.

Workers with income under $116,00 for singles or $183,00 for married couples can contribute the full amount to a Roth. Partial contributions can be made with incomes of $131,000 for individuals and $193,000 for those who are married filing jointly. For high earners, there is still the possibility of doing a “backdoor Roth,” but make sure to check with a tax advisor if you aren’t sure about the qualifications.

How Do I Set Up an IRA?

Just about any brokerage offers both types of IRAs. Once you decide which works better for your needs, all you have to do it spend a few minutes setting up an account online. Experts recommend looking for funds with fees under 1%. Vanguard is always rated top notch and has numerous, low cost funds to choose from.

If you really want to make it easy, consider using a brokerage like Betterment that chooses investments  and rebalances for you based on goals and risk tolerance.

For both types of IRAs:

  • You must have earned income from wages, tips, salaries, net income from self employment, or long term disability benefits received prior to minimum retirement age. The exception is for couples who are married filing jointly when one spouse does not have earned income. A spousal IRA can be set up which allows the non-working spouse to contribute fully, even with low or no earned income.


  • Contribution limits for 2015 and 2016 are $5,500 with a $1,000 catch up contribution for those over age 50. You have until April 15th of the following year to fund this year’s IRA.


  • Money withdrawn before age 59.5 are subject to a 10% penalty and income tax, except under special circumstances, although Roth contributions (not earnings) can be taken out at any time without penalty.

Solo 401(k)

An individual or solo 401(k) works similar to work sponsored plans but is meant for self employed people who have no employees, although a spouse who works in the business may also contribute. With this type plan, contributions can be made pre-tax or after tax if a Roth 401(k) option is chosen.

Solo 401(k) plans are great for those who want to sock away large amounts of income. Participants can make employee contributions up to $18,000 with an extra $6,000 for those over age 50. In addition, 25% of compensation, up to $53,000 (or $59,000 for those over 50) in 2015, can be invested as an employer contribution. The sum of employer and employee contributions cannot exceed 100% of compensation.

There are several brokerages who offer solo 401(k) plans. This is the type of plan I set up trough Vanguard after selling my practice, and it’s been a great way to save for my own retirement. There was some initial paperwork that had to be submitted, but after that, all the contributions can be done very easily online. There is no set up fee and the annual maintenance fee is $20, which is waived once you have $50,000 in the account.

Since then, I’ve read good things about Fidelity’s solo 401(k) plan. They allow you to roll IRA’s into your solo 401(k), which is important for high earners who wish to do a backdoor Roth without filing pro-rata forms.

You do need an EIN before setting up a solo 401(k), which is also a good idea for tax and liability issues anyway. Once your account reaches $250,000, there are extra IRS forms which must be filed.


A Simplified Employee Pension or SEP IRA is another type of tax advantaged account for those who are self employed. You can have a SEP for one person or for employees if applicable. Contributions are made by the employer. For 2015, 25 percent of compensation up to $53,000, whichever is less, can be invested.

SEP-IRAs are quicker to set up and have less paperwork than solo 401(k) plans. You don’t have to have an EIN to establish one, although you probably should have a business tax ID no matter which plan is chosen. SEP-IRAs also work great for those who do have an employer sponsored plan plus self employment income from side hustles.

However, for self employed workers without a traditional employer sponsored retirement plan, having a SEP-IRA means you won’t be able to put aside as much money as you could with a solo 401(k).

Let’s say your business makes $100,000 in net compensation this year. With a SEP-IRA, you can contribute 25% or $25,000 to retirement. Not bad, but with a solo 401(k), you could sock away this amount plus an additional $18,000 or $24,000 if over age 50. The point becomes moot if you aren’t able to contribute this much, but if you can, the solo 401(k) might be a better option, even with the extra paperwork.

Of course there are other ways to save for retirement, including HSAs, passive income investments, or non-tax advantaged accounts, but having tax advantages is nice, especially when looking at higher tax burdens of being self employed.

Do you have an employer sponsored retirement plan or are you on your own?

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.


  1. We are self-employed, so we have used a SEP IRA until now. We also used Roths this year, but I don’t think we’ll be able to in the future due to income phase-outs!

    We are switching to a solo 401(K) next year because it makes more sense for our business set-up.

    • You can still do a backdoor Roth, but it’s much harder if you also have tax deferred IRA contributions. The solo 401(k) probably makes the most sense anyway. With both you guys in the business, you have the ability to put away a lot of money.

  2. We haven’t been as focused on the retirement savings as I have been building my business but something I am looking into setting up next year is the SEP IRA. I think it’s one of the greatest retirement planning tools business owners have as a resource. For now, we are maxing out my hubby’s contributions with his employer. It’s nice that we still have his benefits like healthcare and retirement plans while I am building my business.

    • It is much easier to go out on a limb and build a business if you have a partner there to pick up what you are unable to save. That is something I am really thankful for and try not to take for granted.

  3. Great breakdown Kim! I’ve actually got a very similar post scheduled for a few weeks from now on the same thing. We have Roths (though may have to give those up due to phase-outs) and did SEPs for a few years but moved to a Solo this year as it just made sense so we could put away even more.

    We ended going with Vanguard for our Solos and moved everything over there as well. Fidelity, as you mentioned, is an excellent choice as well. The maintenance fee at Vanguard, at least as it was told to me, is only waived once you have $50k in Vanguard products outside the Solo. It doesn’t matter if it’s ETF or MF, just so long as it’s a Vanguard it qualifies.

    • That is true when you reach Vanguard Voyager status with $50K. I will clarify that in the post. Thanks for pointing that out. This probably should have been two posts. It was actually lots longer and I cut some out so it wouldn’t make people doze off.

  4. Having an employer-sponsored plan is one of the things I like about being an employee. Not only do I get a 401k match up to a certain percentage, I also get an HSA match up to a certain amount. It’s easy to set up automatic contributions and I think people who have an employer plan are more likely to save (though that’s just a hunch, I don’t have data to support that).

    • Having a match and additional HSA contribution is a huge perk. I would agree that it’s much easier to save in an employer sponsored plan because it’s automatic. At least for me, it is hard some months to physically send in a contribution. I could automate it, but I get paid at different times, so that’s not always practical. I’m sure many self employed people are in the same boat. It takes more discipline to do it all yourself.

      • Yeah and I think that’s what is hurting some people as they near retirement. I’ve read some scary stats on how little some 50+ year olds have saved for retirement and I think there has to be many who were self-employed or who didn’t have an “easy” or “simple” way to siphon off money into a retirement account. You need to be really intentional about money with self-employment, but I’m preaching to the choir 😉

  5. Great breakdown, Kim. Many employees are generally familiar with what a 401k is, even if they don’t invest. 🙂 But I see a lot of self-employed people who don’t realize they have some excellent options when it comes to funding their retirement too and often the ability to actually put away more too.

    • I would have had no idea about all these plans a few years ago, but they are there if you are willing to take the time to study and decide what works for your needs. I think many people mean well and want to find out about self employed options but put it off because it’s not the most fun thing on the planet to research.

  6. I think many people will appreciate the break down of the different retirement plans. There’s so much info out there, I think its smart to display the info in a simple fashion. Funding retirement is not a game, it should be a priority.

  7. As a self-employed person, I’m focusing primarily on Roth IRAs right now. I love the fact that the earnings aren’t taxed.

  8. Thank you for the explanation between these different accounts. We got advice that we should be putting money into an IRA, but I had no idea what that was or where to get one. My husband has a 401K through his employer, but I still want to plan for my own retirement as well. There’s no guarantee we will still be together when that time comes, and I don’t want to be left without any retirement funds.

    • I applaud your efforts to find more information. If you don’t have a retirement plan through an employer, an IRA is a great place to start and they are easy to set up. Best of luck.

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